1. What is the Loan Payment Formula?

The loan payment formula calculates the fixed monthly payment required to fully repay a loan over its term, including interest. The formula accounts for compound interest and amortization of the principal balance.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of months in loan term

Extra Payments: The calculator also shows the impact of making additional principal payments each month, which reduces both the loan term and total interest paid.

3. Benefits of Extra Payments

Details: Even small extra payments can significantly reduce the total interest paid and shorten the loan term. This calculator demonstrates how much you can save by making additional principal payments.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, loan term in years, and any additional monthly payment you plan to make. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How much can I save with extra payments?
A: Even $50-100 extra per month can save thousands in interest and cut years off your loan term, especially in the early years of repayment.

Q2: Should I pay extra or invest the money?
A: Compare your loan interest rate with potential investment returns. Paying off high-interest debt usually provides better guaranteed returns.

Q3: When do extra payments have the most impact?
A: Early in the loan term when more of your payment goes toward interest rather than principal.

Q4: Are there prepayment penalties?
A: Most loans don't have them, but check your loan agreement. Some mortgages may have prepayment penalties.

Q5: How do I ensure extra goes to principal?
A: Specify with your lender that additional payments should be applied to principal reduction, not future payments.